When Should I Refinance My Mortgage? | Trusted American Mortgage

Buying a home by obtaining a mortgage is one of the biggest financial investments that you will take on in your lifetime! After you get through the long and sometimes stressful process of finding a home, getting approved and moving in, you may think that your job is done and you can settle in for years or even decades in your beautiful new space.

However, that doesn’t mean your job is always done! You could be eligible to refinance your mortgage throughout the life of your loan based on multiple different factors that could save you serious time and money. Check out our latest blog below to learn more about refinancing.

1. What Is Refinancing?

When you buy your home, you lock in at a certain interest rate, and that rate will follow you through the life of your loan. For example, if you bought your home around 2019, you are probably sitting around a 4% interest rate.

For homeowners who purchased a home in 2023, chances are you have between a 7 and 8% interest rate. That monthly cost on top of your principal payment can seriously add up over time. If you have been keeping an eye on the rates and notice that they have dropped at least 1 to 2% lower than your current rate, it may be time to consider refinancing.

This process includes changing your current interest rate or changing your current mortgage to find a better balance between your rate and the remaining balance on your loan. When it is all said and done, you can expect to save significant money while you work to pay off your mortgage.

2. Can Anyone Refinance?

Anyone can apply to refinance their home, but that doesn’t necessarily mean that a lender will approve the move. One of the first things that a lender will look at is your credit score, which is a number between 300 and 850 that determines how reliable of a borrower you are. The lower the score, the riskier it could be for a lender to approve the refinance.

In addition, you will also need to show that you have gained equity in your home. Many lenders will require at least 20% equity to have been built up in addition to a solid credit score. That doesn’t mean you definitely won’t be approved if you don’t have that level of equity, but it can land you with a higher interest rate during the process.

In addition, you have to take into consideration your plans for the house before applying. Refinancing often includes closing costs, so it is unfortunately not a free process.

Because of this, you have to do the math based on the amount of money you are projected to save against the cost to do this refinance. If the break-even point is a few years out and you were planning to move in the next year, it may not be the most financially responsible choice to make.

Wondering if refinancing is right for you? Contact us at Trusted American Mortgage today.